2019 (9) TMI 1235 - AT - Income Tax

Penalty u/s 271(1)(c) - additional income declared in the revised return filed u/s 153C pursuant to search in connected groups cases - HELD THAT - Application of pre-amended Explanation was limited to non-filer assessee whereas this anomaly was corrected in substituted Explanation. To elaborate, while the original Explanation 5A introduced by the Finance Act, 2007 w.e.f. 01.06.2007 held the persons guilty of concealment where the return was not filed only, the substituted Explanation 5A roped in with retrospective effect from 01.06.2007 by Finance (No.2) Act, 2009 attempted to cover both filers of return of income as well as non-filers for the purposes of penalty on undisclosed income found. Thus, when viewed the law as existing on the date of initiation of search, Explanation 5A was attracted only where the assessee failed to file return of income altogether. When seen with reference to date of search 11.02.2009 in the present case, the provisions of erstwhile Explanation 5A were not attracted to the assessee as the return of income was already filed prior to search and put on record. The application of amended provisions of Explanation 5A of Section 271(1)(c) of the Act which came into force by an amendment subsequent to search albeit with retrospective effect thus cannot be applied when seen with reference to cause of action i.e. date of search. It is to be borne in mind that Explanation 5A appended to s.271(1)(c) of the Act is a legal fiction for deeming concealment against the assessee in search cases. Both original return under u/s 139 of the Act as well as revised return under s.153C of the Act had been filed before the amended provisions were brought into force. Hence, we are of the view that shelter of substituted provisions of Explanation 5A to Section 271(1)(c) of the Act could not be taken to the instant case for fastening concealment penalty. The assessee having filed the return under s.139 of the Act prior to search as well as return under s.153C of the Act prior to substituted Explanation coming into force, would be governed by pre amended Explanation 5A and thus would escape the clutches of penalty under s.271(1)(c) of the Act due to non-fulfillment of conditions of pre amended Explanation. All of the broad contours complement the plea of assessee for deletion of penalty. The imposition of penalty with the aid of Explanation 5A to Section 271(1)(c) of the Act is thus not found to be objectively justifiable in the captioned appeals. AO is directed to cancel the penalty under s. 271(1)(c) - Decided in favour of assessee.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of proceedings under Section 153C of the Income Tax Act, 1961.
3. Consistency of allegations in quantum and penalty proceedings.
4. Application of Explanation 5A to Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The assessee challenged the imposition of penalties for the assessment years 2005-06, 2006-07, and 2007-08. The penalties were imposed due to the alleged concealment of income and furnishing of inaccurate particulars of income. The assessee argued that the penalty orders were based on misinterpretation of law and facts. The Tribunal noted that the penalty was imposed based on the additional income declared in the revised returns filed under Section 153C of the Act. The Tribunal found that the initial satisfaction by the Assessing Officer (AO) was for furnishing inaccurate particulars, while the Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the penalty for concealment of income. This inconsistency in the basis of the penalty was deemed impermissible, leading to the conclusion that the penalty was not sustainable.

2. Validity of Proceedings under Section 153C:
The Tribunal examined whether the proceedings under Section 153C were validly initiated. It was argued that the jurisdiction to invoke Section 153C depends on a valid satisfaction that the seized documents belong to a person other than the searched person. The Tribunal found no evidence that the seized documents belonged to the assessee company rather than the Director from whose possession they were found. The absence of a clear satisfaction note further weakened the Revenue's case, leading to the conclusion that the proceedings under Section 153C were not validly initiated.

3. Consistency of Allegations in Quantum and Penalty Proceedings:
The Tribunal observed that the AO's quantum proceedings alleged furnishing inaccurate particulars, while the penalty order alleged both furnishing inaccurate particulars and concealment of income. The CIT(A) confirmed the penalty solely on the ground of concealment. This shift in the basis of the penalty was found to be inconsistent and impermissible. The Tribunal referred to judicial precedents, including the Gujarat High Court's decisions, which emphasized the need for consistency in the basis of penalty. The Tribunal concluded that the inconsistent allegations rendered the penalty unsustainable.

4. Application of Explanation 5A to Section 271(1)(c):
The Tribunal addressed the application of Explanation 5A to Section 271(1)(c). The AO invoked Explanation 1, while the CIT(A) invoked Explanation 5A. The Tribunal noted that the pre-amended Explanation 5A applied only to non-filers of returns, while the amended Explanation 5A (effective retrospectively from 01.06.2007) covered both filers and non-filers. The Tribunal found that the amended Explanation 5A could not be applied retrospectively to the assessee, as the returns were filed before the amendment. Consequently, the Tribunal concluded that the penalty could not be imposed under the amended Explanation 5A, leading to the deletion of the penalties.

Conclusion:
The Tribunal set aside the appellate orders of the CIT(A) for the assessment years 2005-06, 2006-07, and 2007-08, and directed the AO to cancel the penalties under Section 271(1)(c). The Tribunal also allowed the appeal for the assessment year 2004-05, directing the deletion of the penalty imposed.

Final Result:
All appeals filed by the assessee were allowed, and the penalties imposed were directed to be canceled.